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Term Insurance

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In our previous class, we had an Introduction to Insurance.

We said, there are two types of insurance policies that are essential for every individual.

1. Term Insurance and

2. Health Insurance

In this session, we shall discuss some basics about Term insurance policy and what to look for in it.

First, lets begin by seeing the definition of a term insurance policy:

Term insurance is a type of life insurance policy

=> that provides coverage for a certain period of time, or a specified "term" of years.

=> If the insured dies during the time period specified in the policy and the policy is active - or in force - then a death benefit will be paid.

=> If the insured survives for the entire "term" of the policy, no money is paid back to the insured.

From the above, it is clear that, upon death of the insured, the insured money goes to the nominee.

This is very important.

Because, if the bread earning member of the family has no life cover policy and dies, the other family members will not have any money to live or maintain the same life style.

Hence, if you take a term policy, you are securing the future of your family members.

One catch here is that if you survive the "term, no money will be given back to you.

Of course, there are varients to this condition where in, in some cases, a part or full amount of your premium amount will be given back, but for these type of plans, the premium too will be on the high side.

How much term insurance is needed?

Preferably at the beginning of your financial year, check your income / profit and loss statement of the previous year.

Was there any change in your life style / spending style?

Accordingly, upgrade your term insurance policy / life cover.

Thumb rule: You need a term policy that is a minimum of 10x of your annual income!

Your first priority is to keep the premium money aside for its renewal later during this year.

And to keep some more premium money aside for the next year too !

What to look for in a term insurance plan?

  1. Sum assured should be adequately high
  2. Premium should be affordable
  3. Term period being offered should be sufficiently high
  4. Policy servicing by the insurer should be good enough
  5. Claim ration should be reasonable enough

Online term insurance policy vs offline term insurance policy

If you hardly visit insurance company office or meet their agents or if you prefer online transactions and getting support from customer care over telephone or email, go for an online term insurance policy. In general, an online insurance policy premium is cheaper than that which is offline.

Online or Offline policy?

If you feel you can understand the basic features of an insurance policy, have an internet banking login and famlilar to talk to customer care for your queries, go for online term insurance policy. Going online gives you a discount in the premium amount compared to an offline policy. The underlying features for policy will usually be the same for both online and offline policies.

Premium paying frequency

In general, and if possible, it is better to pay your premium annually so that you can get a discount on the premium compared to paying it monthly or quarterly.

Tip: Pay your insurance premium using your credit card and pay the your credit card bill ontime (immediately if possible). By doing this, you get a chance to improve your credit score (by using credit card and repaying on time). However, if you delay or neglect paying your credit card bill on time, you pay a heavy penalty. So better be careful.

Never let your insurance policy to lapse

Never stop your term insurance..

If you discontinue your term insurance and you wish to take a new policy, it will be like buying a new policy.. and since our age goes up, the premium will be very expensive.

So, never let you term insurance to lapse.

If you feel the old term insurance is insufficient for you, you may purchase a new policy with higher coverage.

Portability of Term Insurance

IRDA allows portability of term insurance but insurance companies are not keen yet to allow that.

This is because the term insurance products across insurance companies are not standard per se.

Hopefully, this will happen in the near future.

For now, only health insurance is easily portable.

Bought a car. Buy term insurance now?

One would need a term insurance irrespective of having a car or not.

The bread earning winner of the family should compulsorily have a term insurance.

If you can afford, you may take a term cover for your spouse as well.

Further, if you bought the car on finance / loan, chances are that they will insist or offer you a term insurance cover.

You will need term insurance irrespective and independent of that.

Examples of some term insurance policies

  • Aegon Life iTerm Insurance Plan UIN-138N016V04

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